Safe assets like deposits and bills of exchange were created by a merchant class…and cannot be recreated by a myth of governmental infallibility….

Synthetic Assets

TED, whose beautifully written posts are always stimulating, challenges me on my last post:

I worry that those who argue for a wholesale return to unlimited liability for the owners of financial intermediaries simply have not thought out the problem of scale inherent in the current global economy.

and I’m first to admit that a wholesale return to unlimited liability in banking by congressional fiat is — shall we say — unrealistic.  But I also think some of TED’s concerns about insufficiency of capital and excessive interest rates in a system with unlimited liability are overblown.

The system of unlimited liability banking grew up in an environment with usury laws, so interest rates (on short-term debt) did not exceed 5% per annum.  Market rates often fell as low as 2%.  It’s far from clear that low interest rates for borrowers are inconsistent with unlimited liability on the part of…

View original post 520 more words


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: